Consequences of Credit Card Default

Please answer our four questions relating to credit card default and its consequences.

We have 4 questions about our credit card debt and its impact on our credit score:

  1. If you fail to pay your credit card bills, what are the consequences and how long will your credit score be affected?
  2. If you file for bankruptcy, are there ways to speed up the recovery of your credit score?
  3. Does it matter/help if you have one credit card for say, $100,000 or 10 credit cards with $10,000 balances, in terms of debt consolidation and consequences of not paying them?
  4. In terms of long-term consequences (credit score, ability to get credit, employment, etc), which bankruptcy hurts you the most? What about bankruptcy vs. foreclosure?

Thank you for any advice!

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Bill's Answer
(7 Votes) Team



  • Review how an account moves to charge-off status.
  • Examine the debt collection process.
  • Understand ways you can rebuild your credit.

I answer your four questions about the consequences of defaulting on a credit card debt below.

1. Charge-Off

As with most consumer debts, failing to make payments on your credit card accounts in a timely manner will likely result in the lenders reporting late payments to the major U.S. consumer credit reporting agencies — Experian, Equifax, and TransUnion. After receiving no payment for 6-8 months, the creditors will be required to “charge off” the debts, meaning that they must remove the debt from their “accounts receivable” books; a charge-off does not mean that you are not liable for the debt, only that the creditor. Charge-offs will appear as derogatory items on your credit reports, and will likely cause a significant reduction in your credit score. To read more about credit, credit scoring, and credit reports, I encourage you to visit the at Credit Information & Resources page.


While the credit problems associated with financial hardship are an issue for consumers who are planning to make a large purchase in the near future, the more immediate consequence experienced by most consumers are the collection activities undertaken by many creditors. You will likely receive collection calls and letters from the creditor directly. If you are still unable to pay the debt after several months, the creditor is likely to refer the account to a third-party collection agency.

Third-party collectors are known to be much more aggressive in their collection tactics than original creditors, so do not be surprised if the calls become more persistent, or even threatening. Thankfully, federal law, the Fair Debt Collections Practices Act, requires third-party debt collectors to stop calling you if you send a written demand to cease communication. You can find an example cease communication demand letter at the Debt Do-it-yourself page.

Quick Tip

The Debt Coach tool can give you no-nonsense advice about your debt resolution options, including the cost and time to debt freed for each option.


In some cases, when all other collection efforts fail, a creditor will decide to file a lawsuit against a consumer for his or her unpaid credit card account. In my experience, only a small percentage of delinquent accounts end up in litigation, but it is a possibility about which you should be aware. If one of your creditors sues you, the court will likely issue a judgment in the creditor’s favor. Depending on your state’s laws regarding the enforcement of judgments, the creditor may be able to garnish your wages, levy your bank accounts, or take other action to enforce its judgment.

Most delinquent consumer debts do not result in litigation, so you should not be overly concerned, but if a creditor does file a lawsuit against you, you may need to consider establishing a repayment plan, or even filing for bankruptcy protection, to prevent further enforcement action.

2. Rebuilding Credit

If you decide to file for bankruptcy protection, the case will appear on your credit reports for ten years from the date of filing, and will likely cause significant damage to your credit rating, especially for the first few years after filing. As time passes, credit scoring models and most lenders give less weight to older derogatory items in favor of newer positive trade lines when reviewing a consumer’s credit history. You need new credit lines so you can establish positive payment history to counterbalance the negative impact of your bankruptcy filing. Establishing a positive payment history can be difficult for people who have had past credit problems, especially those forced to file for bankruptcy protection.

Consider two options. First, if you know someone with an established credit history who will co-sign a loan with you, you may be able to obtain a loan and start building your credit.

Second, if you cannot find someone to co-sign an unsecured loan, apply for a secured credit card. Secured credit cards require you to deposit cash in an account with the credit card issuer. The credit line available on the card is equal to the amount of cash on deposit. This may sound strange; why not just spend your own cash? Secured credit cards report timely payments to the credit bureaus, which helps establish a positive credit history. To read more about bankruptcy, and the alternatives available to consumers, visit the debt help page.

3. Credit Score Impact

From a credit score perspective, it is better to default on one large account than defaulting on many small accounts. Although the large account would carry a heavy weight, the many small delinquencies cause more damage than one big delinquency. But that's not the total picture. As for debt settlement programs, generally the opposite is true — the more accounts you have, the more flexibility the debt servicing company has in negotiating with your creditors. If you have only one account, if the creditor is unwilling to negotiate, the whole strategy is a bust. However, if you have multiple creditors, one or two creditors’ refusal to cooperate will not defeat the plan as a whole.

4. Bankruptcy

Both types of bankruptcy (Chapter 7 and Chapter 13), as well as foreclosure actions, are viewed as serious derogatory items on consumer credit histories. I cannot say that one is “worse” than the other, as each has its own serious consequences. However, I can tell you that a foreclosure action is often more costly for consumers; in addition, many consumers find that they must file for bankruptcy after foreclosure to prevent further collection action by their mortgage lender.

Editor's note

When we wrote this answer originally, we knew a lot less about the impact negative events have on a credit score than we do now. See the article Short Sale, Foreclosure & Your Credit Score to learn more.

If you face foreclosure and/or considering filing for bankruptcy protection, I strongly encourage you to consult with an attorney in your area to discuss your financial difficulties. Your attorney will review the details of your situation and help you decide what actions are appropriate for you and your family.

I wish you the best of luck in resolving the financial problems you are facing.

I hope this information helps you Find. Learn & Save.




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  • BB
    Feb, 2013
    I recently had a $1250 credit card charge default. I have moved and am job searching and am unable to make payments. What are the best options? Should I send a cease and desist letter to third party agencies and contact them when I am able to make a payment or what?
    0 Votes

    • BA
      Feb, 2013
      It is unclear where you are in time regarding your credit card debt. Here are your options:
      • Newly delinquent: You are one or two months behind in payments. If this describes you, talk to your credit card issuer about its hardship program. Credit card issuers do not discuss these plans, and are no obligation to offer these plans. Ask a customer service representative if one is available, and if so, whether you qualify based on your payment history and circumstances.
      • Delinquent less than ~180 days: If this describes you, ask the credit card issuer if you still qualify for a hardship program.
      • Delinquent more than about 180 days but less than your state's statute of limitations for breach of contact: Start negotiating a settlement to your debt. Follow the link I just mentioned to learn how.
      • Your delinquency exceeds your state's statute of limitations for breach of contract: The clock on your state's statute of limitations starts running when you miss your first payment. If the clock for this debt has run out in your state, the original creditor or its collection agent can still file a lawsuit against you to collect the debt (in most states). If it does so, you must file a motion with the court to assert a statute of limitations defense. Because you have this defense available, you might as well send the collector a cease communications notice to stop it from contacting you.

      You mentioned a $1,250 debt. Most debt settlement and credit card counseling providers will not accept you for such a small (relatively speaking) debt amount. Therefore, arm yourself with information by following the links I mentioned above, and take the action appropriate to where you are in the collection cycle.

      0 Votes

  • KF
    Nov, 2012
    I have a credit card that I let a friend use to buy furniture. I had him sign a contract stating that he was liable for the loan. I am now getting calls from a collection agency because he defaulted therefore I defaulted on this loan. I realize the letting him use my credit was not a smart move on my part but now I am concerned with what this is going to do to me. I am currently looking for full time work, have student loans that I am paying on and also have a credit card that I am paying on. I am wondering if there is any recourse that I have.
    0 Votes

    • BA
      Nov, 2012
      You can try to work out a payment plan or a reduced-balance settlement with the collection agency, to prevent things from degrading into a lawsuit.

      Separately, you could try to take action against your friend, for not honoring the agreement the two of you had.
      0 Votes

  • SF
    Aug, 2012
    I have a credit card with $10500 debt on it. I currently make payments as I can but can hardly do so and live day to day and am continuously unable to pay it down and continue to incur interest. What will happen if I default and how do I go about that?
    0 Votes

    • BA
      Aug, 2012
      Sara, you should work hard to avoid default. First, speak directly with your creditors, to see if they will work with you. Maybe one or more will put you into a temporary hardship program with reduced interest or monthly payment. Two, look into both debt settlement programs and credit counseling programs. If neither of those options is right for you, speak with a bankruptcy attorney and also learn what the collection laws are in your state.
      0 Votes

  • RF
    Jul, 2012
    I had to stop my credit card payments 4 yrs ago. Currently, I am working for minimum wage. My employer processes its payroll though the same bank where I defaulted 4 yrs ago. My question is, can that bank hold my paycheck if I try to deposit my paycheck to my account or if I cash it in western union?
    0 Votes

    • BA
      Jul, 2012
      The bank may not intercept a payroll check in the manner you described. I suggest you have your payroll check direct-deposited into an account you open at a local bank or credit union, which is separate from your employer's bank.
      0 Votes

  • BM
    Apr, 2012
    I just recently had a child and husband has lost his job. I currently have a credit card of about $10,000. I also have a line of unsecured credit for another $10,000 from the same bank. I have been in great standing up until now, but I need to default. There is no way I can keep up. I do have another credit card (different place) that is more manageable $1,000. What is the process and consequences of my actions. Will they come for my home, car, wages? I am located in North Carolina, but cc originated in AL...line of credit in NC? Please help!
    0 Votes

    • BA
      Apr, 2012
      Two reading assignments for you, both of which will answer your questions and give you additional background information and ideas for resolving your debt:

      One last thought: Try the Debt Coach, which is a no-cost, no-obligation, no-nonsense analysis of your debts. After you enter your debts into the tool, Debt Coach calculates the costs and benefits of each debt resolution strategy available to you.

      0 Votes